Uber Rebuffed by Judge in Ruling on Drivers’ Suit

A federal judge granted class-action status on Tuesday to a lawsuit that questions the employment classification of Uber drivers, paving the way for a legal challenge that could strike at the heart of the ride-hailing company’s business model.

The ruling will allow a jury to decide whether some Uber drivers should be considered employees or 1099 contract workers, named after a tax designation, which does not require the company to pay payroll taxes or apply minimum wage and overtime laws to the drivers. In some states, the 1099 classification also exempts Uber from paying for things like health insurance or general vehicle upkeep.

“The court concludes that a number of Uber’s class certification arguments are problematic,” Judge Edward M. Chen of the Federal District Court for the Northern District of California in San Francisco wrote in the 68-page ruling. He added that there was “simply no basis” to Uber’s claim “that some innumerable legion of drivers prefer to remain independent contractors rather than become employees.”

The case, filed in 2013, presents challenges to Uber’s business model. Classifying workers as contractors lets the company keep its labor costs low while recruiting scores of people who use their own cars to ferry passengers around more than 300 cities worldwide. Uber’s rapid growth in just five years has given rise to a new service economy applying a similar contract-worker model across multiple sectors, from house cleaning to grocery delivery.

While legal experts said the case would not be decided in the near future, a ruling that ultimately goes against Uber could complicate its financial trajectory and have implications for its more than 160,000 drivers. The company, based in San Francisco, has raised upward of $6 billion in private investment and is valued at more than $50 billion by investors, making it the most valuable private venture-backed company since Facebook. Uber’s value has soared as its executives have convinced investors that the company has plenty of room to grow beyond the transportation industry, including food and retail goods delivery.

The class-action certification may also set a precedent. Lyft, a competitor to Uber that has also raised venture capital, faces a similar class action.

The certification is a prelude to a bigger battle, said Richard J. Reibstein, a partner in the labor and employment practice at the law firm Pepper Hamilton. “This motion is only a legal skirmish,” he said. “The real issue is whether the drivers are independent contractors or employees. If they are employees, then Uber will be hard-pressed to deliver profits for its investors.”

In his ruling, the judge certified just a portion of the class that the plaintiffs were seeking, narrowing it to drivers who directly contract with Uber and largely to those who were drivers before June 2014.

Uber said that it was pleased the judge certified only a “tiny fraction” of the plaintiffs and that it would probably appeal the ruling.

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An Uber driver at a demonstration in California last year. The company’s business model lets it keep costs low while recruiting scores of people who use their own cars to ferry passengers.CreditLucy Nicholson/Reuters

Shannon Liss-Riordan, a lawyer representing the drivers, called the ruling “a major victory for Uber drivers.” Uber has contested the suit since its filing, asserting that the company is in the technology and logistics business, and is essentially an online marketplace that matches willing riders with available drivers. Uber has frequently also said that its drivers are able to set their own schedules and do not have to abide by the many other requirements that companies can impose on employees. In July, the company came out strongly against the class-action suit, presenting testimonials from more than 400 drivers who say they appreciate Uber’s flexibility.

The lawsuit is just one of Uber’s mounting legal challenges over the status of its workers. In June, the California Labor Commissioner’s Office ruled that Barbara Ann Berwick, a former Uber driver, should have been considered an employee. The office ordered Uber to pay Ms. Berwick $4,152.20 in expenses and other costs for the two months she worked as an Uber driver in 2014.

Uber is also dealing with suits that question the safety records of its drivers. Last month, the district attorneys of San Francisco and Los Angeles said that background checks used by Uber failed to uncover the criminal records of 25 drivers in the two cities. It was part of an amended complaint to a civil suit, originally filed in December, that claims Uber has continually misled consumers about the methods it uses to screen drivers.

On Tuesday, at least one of Uber’s legal issues pertaining to its drivers and their safety appeared to be resolved when a plaintiff withdrew a lawsuit against the company that asserted that an Uber driver in India raped his passenger.

The case, which made headlines in December, incited local officials to temporarily ban the ride-hailing service in the Delhi region after details emerged that the driver, Shiv Kumar Yadav, had previously been detained on suspicion of raping another female passenger in 2011. While officials said that case was ultimately closed and Mr. Yadav was acquitted, the fallout around the episode raised questions about Uber’s security screening process for drivers.

An Uber spokeswoman declined to comment on the withdrawal of the case. Douglas Wigdor, a lawyer representing the plaintiff, who filed as Jane Doe, also declined to comment.

A version of this article appears in print on , on Page B1 of the New York edition with the headline: Judge Rebuffs Uber in Ruling on Drivers. Order Reprints | Today’s Paper | Subscribe